California HMO Regulator’s “Notices” Would Short-Circuit Legal Rights of Patients Whose Coverage Was Illegally Cancelled

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Action Coincides With Insurer Effort In Legislature to Legalize Coverage Cancellations

Santa Monica, CA — The Department of Managed Health Care (DMHC) announced today that it would begin to send notices to cancelled patients about settlements reached with health insurers.  This action short-circuits patients’ legal remedies under pending class action lawsuits against health insurers’ past retroactive cancellations of coverage – so called rescissions.  

Simultaneously, Governor Arnold Schwarzenegger is seeking a legislative sponsor for his proposed legislation which would allow insurers to rescind the coverage of innocent patients.

The recent DMHC settlements with Blue Cross, Blue Shield, Kaiser, Health Net and PacifiCare acknowledge that patients should be able to recover unpaid medical bills following illegal cancellations of their health coverage. Yet the details of the settlement stack the legal deck in favor of health insurers, said Consumer Watchdog, allowing them in many cases to evade any payment.  Consumer Watchdog raised concern that patients who elect to participate in the DMHC settlement are required to forgo better remedies likely to emerge from class-action lawsuits.

On Friday, attorneys with class-actions lawsuits against Health Net, Blue Shield and Blue Cross told the DMHC that they were planning to seek court injunctions to bar insurers from sending notices to patients about the industry-friendly settlements reached with DMHC.  Yesterday, class action attorneys began the process against one insurer, Health Net.  The DMHC action today circumvents the attorneys’ effort because the DMHC is not subject to the class-action lawsuits.

"Instead of regulators shielding insurance companies from the consequences of harming patients, we need criminal prosecutions of insurance executives and tough new rules protecting innocent patients," said Jerry Flanagan, Health Care Policy Director for Consumer Watchdog.  "Patients who receive these notices may be hoodwinked into forgoing their legal rights under class-action lawsuits, which are likely to provide better results.  What patients don’t know is that the fine print of the DMHC settlements fails to limit how much insurers can charge for new health coverage and stacks the legal deck in favor of insurers over unpaid medical bills."

Under the DMHC settlements, insurers could use closed-door arbitration proceedings, where patients would likely not be able to afford legal representation, to avoid paying the medical bills racked up by patients both before and after the policy rescission.  Patients would likely be on their own to interpret and even try to make complex legal arguments, said Consumer Watchdog. The patients would also be fighting the insurer about the necessity of their past medical care in front of arbitration judges, not before doctors or medical experts.

Consumer Watchdog said one pending bill in Sacramento, AB 1945, by Assembly Member Hector De La Torre (D-South Gate) would protect innocent patients from cancellation.  Governor Schwarzenegger is seeking a competing bill that would undercut those protections.

In 2007, the Schwarzenegger Administration promised to protect innocent patients from rescission in new regulations, which have now stalled. The governor’s office has instead drafted legislative language that retreats from his promise and would weaken existing law.  The governor’s bill would repeal the ban on “post-claims underwriting” in existing law (Health & Safety Code § 1389.3) which bars health insurers from rescinding or limiting a policy in any way after a patient gets sick unless the insurer can show that the patient “willfully misrepresented” a material health fact on their enrollment application.

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Consumer Watchdog
Consumer Watchdog
Providing an effective voice for American consumers in an era when special interests dominate public discourse, government and politics. Non-partisan.

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